Taylor Bean and Whitaker at death’s door, as the Ocala-based mortgage giant that was raided by the FBI, has closed its doors and sent all its employees home, August 3, 2009. Coincidentally, the same thing happened to Colonial Bank. Federal agents descended onto Taylor, Bean & Whitaker Morgage Corp. at the Platinum Financial Center and Platinum Community Bank Monday morning August 3, 2009.
TBW Chairman Lee Farkas said, “We closed the business.” Employees received an e-mail announcing that the company was ceasing all loan-origination operations. Less than an hour later, dozens of employees carrying their belongings streamed from the building, many with tears welling in their eyes. “Regrettably, TBW will not be able to close or fund any mortgage loans currently pending in its pipeline,” the e-mail to employees reads. “TBW is cooperating with each of the Agencies with respect to its servicing operations and expects to continue to service mortgage loans as it restructures its business in the wake of these events. We understand that this could have a significant impact on our valued employees, customers and counterparties, and are very disappointed that a less drastic option is unavailable.”
The FHA, the government mortgage insurer, suspended Taylor Bean, its third-largest lender, citing possible fraud. It’s “distinctly possible this is going to be the end of Taylor Bean,” said David Lykken, managing partner at consultant Mortgage Banking Solutions in Austin, Texas. The FHA said in a written statement Tuesday that Taylor Bean (TBW) failed to submit its required annual financial report and failed to inform the FHA that TBW’s independent auditors ended their examination of the company when they found “certain irregular transactions that raised concerns of fraud.” In addition to the loan suspension, the FHA is also recommending that two top TBW officials be temporarily banned from doing mortgage business with the federal government. The FHA alleges that TBW President Ray Bowman and TBW CEO Paul Allen submitted false or misleading documents to the U.S. Department of Housing and Urban Development.
The agency’s decision follows a failed attempt by Taylor Bean to lead an investor group that would pay $300 million for a controlling stake in Colonial BancGroup Inc., one of its own lenders. Agents bearing federal warrants searched Colonial’s Orlando offices, and the Ocala Star-Banner reported a similar search at Taylor Bean.
Mortgage brokers and their clients with applications at Taylor Bean will be hard hit because “most of the quality shops have stopped dealing with brokers,” Moskowitz said. The number of contracts to buy previously owned homes in the U.S. rose in June for a fifth straight month, climbing 3.6 percent and exceeding economists’ forecasts, the National Association of Realtors said. “They’re a big player in Florida and this is bound to have a detrimental effect, especially the loans sitting in their pipeline that haven’t closed,” Valerie Saunders, president of the Tallahassee-based Florida Association of Mortgage Brokers, said in an interview. Potential homebuyers who are unable to fund loans through Taylor Bean will have to try to switch lenders, potentially adding time and cost to their purchase, Saunders said. She doesn’t have any buyers seeking mortgages from the company. The importance of FHA loans to the housing market after retreats by banks and private mortgage insurers is “Capital-H huge,” Lykken said. “It’s so huge it’s not even funny.”
In June, applications for loans backed by the FHA or Department of Veterans Affairs represented 35.9 percent of all submissions for refinancing or home purchases, the highest share since 1990, according to the Mortgage Bankers Association. The agency insures mortgages with down payments as low as 3.5 percent, and doesn’t have minimum credit-score requirements.
FHA mortgages represent about half of all new loans for home purchases, up from about 10 percent at the start of 2008, as borrowers with low down payments or poor credit get turned down for other financing, according to a Bank of America Corp. report last month. Taylor Bean, based in Ocala, Florida, does business across the U.S. through loan brokers and other lenders. It ranked 12th among U.S. mortgage originators in the first half of this year with $17 billion of loans, or 1.7 percent of the total, according to industry newsletter Inside Mortgage Finance. Among FHA lenders, TBW ranked third largest in May.
Taylor Bean has bought FHA mortgages from other lenders still on probation because they had just signed up with the agency, Lykken said. Few other lenders will accept those loans, and Taylor Bean is known for being less strict in underwriting both FHA and so-called conventional mortgages, which can be sold to government-support mortgage-finance companies Freddie Mac and Fannie Mae, he said. “I’ve heard it said it’s good that we have Taylor Bean there because no one else will buy these loans,” Lykken said. “To say they’re a bottom-feeder may be too strong a statement, but that’s how they’re viewed in a lot of cases.”
Brad German, a spokesman for McLean, Virginia-based Freddie Mac, declined to comment. Brian Faith, a spokesman for Fannie Mae, said his Washington-based company hasn’t done business with Taylor Bean “for some time.”
Colonial Bancgroup Story
Colonial Bankcgroup, the ailing Alabama bank, said there is “substantial doubt” it can survive after posting a fifth straight quarterly loss and canceling a sale to an investor group.
The second-quarter net loss widened to $606 million, or $3.02 a share, from $8.96 million, or 5 cents, a year earlier when there were fewer shares outstanding, the bank said yesterday. An agreement to sell a 75 percent stake for a $300 million capital investment fell through when it failed to win regulatory approval.
Colonial, with $26 billion in assets and 355 branches, is one of “the larger U.S. banks with obvious financial problems,” said Ralph “Chip” MacDonald, a Jones Day lawyer in Atlanta. Colonial’s losses in the past five quarters total more than $1.6 billion, mostly from defaults on loans to Florida builders and developers. The bank hasn’t met capital requirements to receive U.S. rescue funds.
“I’m sure Colonial would have liked to have had a shot to get additional funding” through the U.S. Troubled Asset Relief Program (TARP), said Jim Barth, a former chief economist at the Office of Thrift Supervision and a professor of finance at Auburn University in Alabama. “Colonial was considered one of the stronger smaller regional banks a few short years ago, but now it appears to be desperate in raising capital.”
Colonial canceled the proposed $300 million investment by a group led by Taylor Bean & Whitaker Mortgage Corp., an independent lender in Ocala, Florida. Taylor Bean had assembled about 30 mortgage companies to take a 75 percent stake in Colonial, one of the largest U.S. companies extending credit to smaller home lenders.
Christopher Sharpley, deputy special inspector general for the Treasury program, would not comment on why the bank, the Colonial BancGroup, Florida’s sixth-largest bank, and the mortgage lender, Taylor, Bean & Whitaker, based in Ocala, Fla., were being investigated. But the inquiry appears to reveal the largest case by far being investigated by the bailout inspector general, given that about $550 million in bailout money is involved.
Banking experts said the investigation seemed related to an arrangement set up by the Treasury Department that required Colonial to obtain at least $300 million in private investment before being granted a bailout. The goal, regulators said, was to raise the bank’s risk-based capital ratio to 12 percent by Sept. 30, to offset losses from loans tied mainly to real estate in Florida.
In April, the company announced that Taylor, Bean & Whitaker, with other investors, would provide the $300 million infusion. But on Friday, Colonial reported in its quarterly report that the deal was mutually terminated because regulatory approval could not be obtained.
Stanley D. Smith, a finance professor at the University of Central Florida in Orlando, said that Colonial was one of several southeastern banks that came into Florida during the building boom, only to regret it later. As of June 31, some 88 percent of Colonial’s loans were in real estate, Mr.. Smith said, a high value that helps explain the bank’s losses.
Colonial has signed orders with federal and state banking regulators that require the bank to deal with liquidity and its allowance for loan losses and seek approval for management changes. Colonial is among the largest warehouse lenders, providing money that independent mortgage companies use to make home loans. It is Alabama’s second-largest bank after Regions Financial Corp.
– AP news